The great Pasadena bond caper

Poor oversight and record-keeping by the Pasadena Unified School District allowed thieves to embezzle tens of thousands of dollars raised through 1997's $240 million Measure Y school improvement bond, the Weekly has learned.

Superintendent Edwin Diaz told the paper this week that he contacted Pasadena police earlier this year after auditors discovered several spending discrepancies, including an $80,000 payment in late 2006 for nonexistent construction work at Washington Middle School.

Shortly after arriving on the job in March 2007, Diaz ordered an audit of all PUSD management activities, an effort that also uncovered alleged misuse of funding for the district's Pasadena LEARNs program. The district launched an internal investigation into Measure Y spending and hired a private auditor-investigator in late July 2007, then turned findings over to police in March.

Pasadena police Detective Lt. John Dewar confirmed that police found significant evidence of wrongdoing, but said that in June the LA County District Attorney's office declined to file charges in court because the school district's records of Measure Y expenditures were inadequate to mount a prosecution.

"It appeared there had been a theft of at least $80,000 - maybe much more," said Dewar, who also considered some payments for work at other school sites suspect. "But when we filed the case with the DA's office it was rejected, basically on the ground that the school district couldn't verify what work was done, if any, or who did it, and didn't have any viable records, so prosecution was just impossible."

Dewar said police suspected foul play by both contractors and district employees. "There were some questions about the payment process and who in the district was making payments ... and some evidence there might have been kickbacks and payoffs," he said.

"It appeared there was no accountability down the chain, nobody responsible for signing off [on work orders] and some shady backroom deals that were never caught ... but we couldn't find any paperwork to show what happened," continued Dewar, who said it was often unclear who, if anyone, was inspecting jobsites because several inspection logs were missing.

Although he did not specify who may have been involved, Diaz said that as many as 20 low-level officials had authority to spend Measure Y funds. "There are no employees now working for the district who were part of that concern," he added.

Board of Education members Ed Honowitz and Steve Lizardo said that board members were advised of the investigation and its progress. Both said wrongdoing appeared to originate in the district's Facilities Department, which was later reorganized by Diaz.

"Based upon what I understood from staff, there's absolutely no question that there was staff in our Facilities Department that either were aware or should have been aware of the problems being presented and should have been keeping track of the spending of these funds," said Lizardo.

Honowitz said the district's investigation centered mainly on wrongdoing by one employee, but alluded to others sharing responsibility for misappropriating funds.

"The board was made aware of what was going on. There was an employee that was basically circumventing some of the accountability systems and the district discovered that, investigated it, ultimately terminated the employee and turned [the investigation] over to the Police Department. Because it's a personnel issue I can't go into a lot of detail other than to say there were some bad apples in the bunch and the district took decisive steps to address it," said Honowitz.

The Weekly has filed a state Public Records Act request for police documents related to the investigation.

With less than two weeks until voters decide whether to approve Measure TT - a $350-million bond that would be funded by annual property assessments expected to cost homeowners about $46 per $100,000 of their home's assessed value - Diaz also hoped to reassure voters that new controls and reorganized management roles would prevent such recklessness from happening again.

"The fact that we took the time to delve deeply into the management of Measure Y should speak to our focus on making sure we do things right. When we discover something wrong, we're going to correct it and not stand for a lack of oversight and management," said Diaz, whose predecessor, Percy Clark, was fired in November 2006 and replaced by Interim Superintendent Darrel Taylor.

If Measure TT is approved, Diaz promises to audit bond spending every three months and make those reports public on line. State law would also require a citizens' oversight committee and annual independent audits.

Diaz said he would also limit the number of employees allowed to authorize bond expenditures to one man - district Chief of Staff Steve Brinkman, who followed Diaz to PUSD from the Gilroy Unified School District and is expected to oversee finance and operations.

Although board members received regular staff reports about how Measure Y money was being spent, the information therein provided little more than project overviews, according to Honowitz and Lizardo.

"The board would receive monthly summary reports from our Facilities Director that I understood to be vetted by the Measure Y Citizens' Oversight Committee, but these did not contain any micro-level information about expenditures," said Lizardo.

It was partly from unease over the theft of Measure Y funds that Lizardo opposed a recent decision by board members to lower the requirements for competitive bidding of contracts.

On Oct. 7, board members voted 5-2 to enact new rules that would allow the district to avoid the public bidding process for projects valued up to $125,000. Previously, all contracts valued at more than $15,000 required full public bidding.

With the new process, the district can solicit three or more bids from a list of pre-qualified companies which have met certain district requirements. A staff report recommended the change as a way to save time and money that would otherwise be spent on advertising the jobs.

Voting against the move were Lizardo, the only board member to vote against placing Measure TT on the Nov. 4 ballot, and Board member Renatta Cooper, who was absent when the board approved Measure TT.

"At least one concern I had was this past experience, that raising the limits [for public bidding] generally means less oversight. It did not make sense, as stewards of public money, to up the dollar amount at which we do not have to follow stricter public bidding requirements," said Lizardo.